Military Officer - November 2006 - (Page 68)

lowest cost plan possible. (See “Get More With MOAA,” previous page, for information about MOAA’s sponsored 529 plan.) Recently, a consortium of several hundred private colleges and universities banded together to offer a national prepaid college tuition plan. You can learn more about this plan at www.independent529plan.org. Do your homework Applying for student aid can be a challenge. However, it is critical to complete the Free Application for Federal Student Aid (FAFSA) in a Compare Savings Plans Savings Tool Section 529 College Savings Plan timely manner — even if you don’t think your child will be eligible for student aid. Federal aid formulas primarily consider income, assets, and the number of household members in school at a given time to calculate the expected family contribution (EFC). In general, a child’s assets — such as funds in a custodial account — count Contribution Limits Most plans allow total contributions of $200,000 to $300,000. The annual limit per contributor per beneficiary is $12,000. A special rule allows for up to a $60,000 contribution in one year if no contributions are made for five years. Married couples can double to $24,000 a year (or $120,000 using the five-year rule) Same as Section 529 College Savings Plan Tax-Deferred Savings? Yes Tax-Free Distributions? Exempt from federal income tax if used for qualified education expenses; also exempt from state taxes in many states. This exemption is scheduled to end in 2010, but most experts expect Congress to extend it Pre-Paid College Tuition (Old-Style 529 Plan) Yes Same as Section 529 College Savings Plan. However, some states are freezing or ending these plans Same as Section 529 College Savings Plan Coverdell Education Savings Account $2,000 annually for children age 18 and under Yes Custodial Accounts (UGMA/UTMA) $12,000 per contributor per beneficiary annually (married couples can contribute $24,000 annually) No. As of 2006, also subject to the expanded “kiddie tax” for children under age 18 No. Subject to normal federal and state tax rules and “kiddie tax” rules U.S. Savings Bonds (Series EE and Series I) purchased after Dec. 31, 1989, by someone age 24 or older Limited to $30,000 annually for each type ($60,000 for married couples) Interest is not taxed until bonds are redeemed Interest is free from federal taxes if redeemed for qualified educational expenses by original buyer, subject to modified AGI limit phaseout between $63,100 and $76,200 for single filers ($94,700 and $124,700 for married filers) 68 MILITARY OFFICER NOVEMBER 2006 http://www.independent529plan.org

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From the Editor From the President Your Views MOAA Directory Rapid Fire Washington Scene Financial Forum Ask the Doctor Chapter Activities Cover Story: Financial Guidebook Got (the right) Insurance? A Penny Saved, a Degree Earned The “Y” MOAA Scholarship Recipients Pages of History Information Exchange Member Books MOAA Scholarship Donors MOAA Member Services Advertising Index MOAA Calendar Sounding Taps Encore

Military Officer - November 2006

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